By New Deal Democrat
September data started out with a mixed employment report including a tick upward in unemployment, positive vehicle sales, positive factory orders, and positive ISM manufacturing and services indexes. August wholesale sales increased, and inventories decreased.
My usual note: I look at the high frequency weekly indicators because while they can be very noisy, they provide a good Now-cast of the economy, and will telegraph the maintenance or change in the economy well before monthly or quarterly data is available. They are also an excellent way to "mark your beliefs to market."
In general, I go in order of long leading indicators, then short leading indicators, and then coincident indicators.
Interest rates and credit spreads
- 4.36% BAA corporate bonds up +10%
- 1.72% 10-year treasury bonds up +.15%
- 2.64% credit spread between corporates and treasuries down -.05%
Yield curve, 10 year minus 2 year:
- 0.87%, up +0.5% w/w
30-year conventional mortgage rate
- 3.53%, up +.14% w/w
Yields on corporate bonds and treasuries made new lows after the Brexit vote, strongly suggesting that the expansion will continue through mid-2017. On the other hand, mortgages have failed to make a new low for over 3 years, thus turning yellow (caution or neutral vs. positive) as a recession indicator. Yields are also still positive, but spreads are neutral.
- Purchase applications down -0.1% w/w
- Purchase applications up +14% YoY
- Refinance applications up +5% w/w
Real Estate loans
- Up +0.1% w/w
- Up +7.8% YoY
Mortgage applications turned up early in 2015 in response to very low rates. They briefly spiked in response to low rates following the Brexit vote. Purchase applications improved just enough in the last two weeks to be positive again.
Real estate loans have been firmly positive for over 3 years.
- +0.1% w/w
- -1.0% m/m
- +7.0% YoY Real M1
- +0.3% w/w
- +0.6% m/m
- +6.8% YoY Real M2
Both real M1 and real M2 decelerated markedly in January to the point where they were very weak positives, but both have been more firmly positive since.
Trade weighted US dollar
- Down -0.45 to 121.62 w/w, up +1.2% YoY (one week ago) (Broad)
- Up +1.06 to 96.52 w/w, up +1.8% YoY (yesterday) (major currencies)
The US dollar appreciated about 20% between mid-2014 and mid-2015. It has gone mainly sideways since then, and for the last 7 months has generally been neutral or a positive. Both have been neutral for the last 2 weeks.
- Down -0.71 to 95.28 w/w
- Up +9.90 YoY
BBG Industrial metals ETF
- 100.10 down -1.85 w/w, up +2.4% YoY
Commodity prices as measured by industrial metals bottomed last November. ECRI subsequently turned up as well, enough so that both turned positive. After briefly turning down enough to be negative, industrial metals are positive again.
Stock prices S&P 500
- Down -0.7% w/w
Stock prices became a positive having made new all-time highs during the last few months.
Regional Fed New Orders Indexes
(*indicates report this week)(no reports this week)
- Empire State down -8 to -7.5
- Philly up +8.6 to +1.4
- Richmond up +13 to -7
- Kansas City up +19 to +12
- Dallas down -8.2 to -2.9
- Month-over-month rolling average: up +1 to -1
In March and April, the turning up of these indexes forecast the positive readings in the ISM. Then in May and June, there was a serious divergence between the two, but in July the regional indexes became on balance positive, again forecasting the positive ISM. In August, there was a serious downdraft which again forecast the poor ISM. September turned better, accurately forecasting a positive ISM manufacturing reading.
Initial jobless claims
- 249,000 down -5,000 (new 40-year low)
- 4-week average 253,500 down -2,500 (new 40-year low)
Initial claims remain well within the range of a normal economic expansion, as does the 4-week average.
The American Staffing Association Index
- Up +1 to 96 w/w
- Down -2.29 YoY
This index turned negative in May 2015, getting as bad as -4.30% late last autumn. Since the beginning of the year, it became progressively "less bad" and for the last few months has been so close to positive YoY as to be a neutral. For the last two weeks, however, it is bad enough to be negative again.
- $178.7 B for the month of September vs. $171.1 B one year ago, up +$7.6 B or +4.4%
- $172.2 B for the last 20 reporting days ending Thursday vs. $162.8 B one year ago, up +$9.4 B or +5.8%
Beginning with the last half of 2014, virtually all readings were positive, but turned more mixed and choppy, and occasionally even negative, since August 2015. With one brief exception, the last few months have shown a marked improvement.
- Oil up +$1.55 to $49.60 w/w
- Gas prices up +$.02 to $2.24 w/w
- Usage 4-week average up +3.2% YoY
The price of gas bottomed last winter at $1.69. Usage has been almost uniformly positive. Gas prices are off their summer seasonal high, but have gone sideways for the last two months, and are now less than -5% below their readings on 12 months ago. Similarly, oil is only about $3 less per barrel than it was 12 months ago. This is enough to move them from positive to neutral. In short, oil is no longer a tailwind for the economy.
Bank lending rates
Both TED and LIBOR were already rising since the beginning of last year to the point where both have usually been negatives, although there were some wild fluctuations. Of importance is that TED was above 0.50 before both the 2001 and 2008 recessions. Both recently reached that level.
- Johnson Redbook up +1.3% YoY
- Goldman Sachs up +3.6% w/w, up +2.9% YoY
- Gallup daily consumer spending 14-day average $91, unchanged YoY
Both the Goldman Sachs and Johnson Redbook Indexes progressively weakened in pulses during 2015, before improving somewhat since the beginning of last November. Redbook has recently turned very weak. Goldman and Gallup have both been generally more positive, but Gallup turned negative for the last 2 weeks, before being unchanged this week.
- Carloads down -4.4% YoY
- Loads ex-coal down -1.4% YoY
- Intermodal units down -3.5% YoY
- Total loads down -4.0% YoY
Rail traffic turned negative and then progressively worse in pulses throughout 2015. Rail loads became "less worse" in January and showed continued improvement until going over the proverbial cliff all spring (typically down -10% or more) in spring. It trended incrementally less awful since June, and has scored neutral 4 times in the last 8 weeks, including this week.
Harpex has recently resumed its decline again to repeated multi-year lows. On the other hand, BDI has improved to a 12-month high, and higher then 20 of the last 24 months, and so has become positive. I am wary of reading too much into price indexes like this, since they are heavily influenced by supply (as in, a huge overbuilding of ships in the last decade) as well as demand.
- Up +0.4% w/w
- Down -4.5% YoY
Until spring 2014, steel production had generally been in a decelerating uptrend. It then gradually rolled over and got progressively worse in pulses through the end of 2015. This year it started out as "less worse" and turned positive a few months ago, but recently turned negative again.
Among long leading indicators, interest rates for corporate bonds, treasuries, the yield curve, real money supply, real estate loans, mortgage rates, and mortgage applications are positive. A significant negative, however, is that mortgage rates have not made new lows for over 3 years.
Among short leading indicators, stock prices, jobless claims, gas usage, and industrial commodities remain positive. Oil and gas prices, however, have now both turned neutral from being positive for over 2 years. Both readings of the US dollar are now neutral. The volatile regional Fed average has improved enough to score as neutral.
The coincident indicators remain mixed. Rail has improved enough again this week to score neutral. Consumer spending is mixed. The BDI is positive, while steel, the Harpex shipping index, and bank rates remain negative. Tax withholding is positive. Temp staffing turned from neutral to negative.
The recent wobbling of several consumer measures - staffing and spending - are of some concern. Of longer term concern is that gas and oil prices appear to have ended the decline that began in summer 2014, and both are now neutrals. In other words, while energy prices aren't a headwind as of now, they are no longer a tailwind.
Friday's jobs report showed some darkening (although still positive). Next week there will be some follow-up details fleshing out the jobs market picture.